Conclusiones Primera:

International Trade for

Better Health Systems

and Services

Olivier Cattaneo

accordingly, a case for specialization in market niches on the basis of each coun- try’s resources and trade opportunities.

Medical tourism has received significant media attention. However, the trade in health services is not limited to the crossborder movement of patients, which represents Mode 2, only one of the four possible modes of service delivery identi- fied by the General Agreement on Trade in Services (GATS). Other key compo- nents include the temporary movement of health professionals to deliver services across borders (Mode 4, for example, the crossborder movement of doctors and nurses), foreign establishment (Mode 3, for example, the opening abroad of a branch of a clinic), and the crossborder provision of health services through tech- nological means (Mode 1, for example, telemedicine). In addition, a number of other services and goods are traded at the margin of health services; it is a com- mon characteristic of many services that they enable trade in other sectors. Some examples of the different modes are indicated in table 4.1.

The trade in health services has potentially significant effects on the availability of these services, the quality of the health system, and the population’s health gen- erally in both the exporting country and the importing country. The effects of trade in health services also vary considerably from one mode of delivery to another, and imports often appear more important than exports in improving a country’s domestic health system. An excessive enthusiasm for medical tourism that is not backed by serious business plans or coherent government policies could result in a low return on investment, lead to frustrated expectations, and prejudice the local supply of health services. Not all countries have a comparative advantage in the health service trade. While a carefully designed trade strategy in the health sector could have significant positive spillover effects on the domestic supply of and access to health services (in addition to the positive global impacts of trade), a poorly designed strategy could divert already scarce resources from people in need in developing countries.

Health is not a typical commodity or service; it is a public good. Trade in health services could directly contribute to reaching—or missing, if negative effects pre- vail—health-related Millennium Development Goals.1Trade objectives in the health sector should be compatible with other legitimate social objectives (for example, universal access). Health is also a highly regulated profession, for legiti- mate purposes: even more than other professional services, medicine is character- ized by the asymmetry of information between the service provider (a doctor trained in the practice of medicine) and the patient (seeking treatment). Regula- tion of the health sector is necessary to protect patients against malpractice. Trade promotion in the health sector therefore revolves not around deregulation, but around more effective regulation and, sometimes, even more regulation, for example, adopting better quality standards for hospitals and clinics. Similarly,

Health without Borders 101

trade promotion revolves not around challenging the public health sector, which often plays a crucial role in the supply of health (and medical education) services, but around designing efficient services in a more competitive environment. Expe- rience shows that public involvement is often necessary for the success of export promotion strategies in the health sector (see, for example, Cuba, the Philippines, or Thailand). Nonetheless, private investment (including foreign investment) remains a crucial factor in success, particularly where public resources are too scarce to maintain an efficient health care system.

Table 4.1. What Are the Modes of Trade in the Health Sector?

Trade in goods

Trade in Trade in associated with

Mode health services ancillary services health services Mode 1 Crossborder supply Mode 2 Consumption abroad Mode 3 Commercial presence Mode 4 Presence of natural persons

Source: World Bank staff.

– Telemedicine, including diagnostics, radiology

– Medical tourism, that is, voluntary trip to receive medical treatment abroad

– Medically assisted residence for retirees – Expatriates seeking care

in country of residence – Emergency cases (for

example, accident when abroad)

– Foreign participation or ownership of hospital/ clinic or medical facilities (for example, capital investments, technology tie-ups, collaborative ventures) – Movement of doctors

and health personnel for the purpose of commercial medical practice

– Distance medical education and training – Medical transcription,

back office

– Medical research tools and databases – Medical insurance – All activities associated

with health tourism (for example, transport, hotel, restaurant, paramedical, local purchases)

– Local medical education and training of foreign nationals – Foreign-sponsored education or training centers – Foreign-sponsored medical research facilities – Movement of doctors and health personnel for other purposes (for example, education or training) – Health care equipment – Drugs – Medical waste – Prostheses

The difficulties in sustaining public health insurance schemes, the aging of the population, and related supply bottlenecks in the health system are among the drivers of frustrations and outbound medical tourism in the North. Most develop- ing countries face far more critical health issues, including critically low medical density and the poor quality of the infrastructure and services, which, combined with other factors, result in poor public health and higher mortality rates. In all these countries, trade in health services should be seen not only as a source of income in the balance of payments, but also as a primary means to remedy short- ages and improve domestic health systems. Therefore, the main challenge will be to find adequate accompanying policies that maximize the positive domestic spillovers and minimize the negative domestic spillovers of trade in health services.

The media and many expert studies have focused mainly on North-South trade (in the case, for example, of the movement of patients) or South-North trade (in the case, for example, of the movement of doctors and nurses). The potential of South-South trade has often been ignored or neglected, in sharp contrast with the reality of trade. In Tunisia, for example, Libyans represent more than 80 percent of the foreign medical patients; similarly, more than 80 percent of the Omani patients treated abroad go to India. There is a case for more cooperation in the South. This may involve the creation of regional health centers of excellence (for medical education or treatment) that would help in spreading out the cost of medical education and infrastructure and in reaching a critical mass for writing off investments in technologies.

Objectives and outline of the chapter

A number of studies and volumes have been published that cover the trade in health services extensively (see, for example, Blouin, Drager, and Smith 2006). The scope of this chapter is more modest. It is an effort to summarize existing knowl- edge and to select the most relevant information to help individuals or organiza- tions involved in the design of health or trade reforms and policies so that they may understand the potential benefits and risks of trade in the health sector, as well as ways to maximize the former and minimize the latter. It is designed to assist nontrade (health) experts in understanding how trade can help improve health systems and the access to health services and to assist trade specialists in understanding the specific characteristics of the health sector.

The second section explores what a country could expect from increased imports or exports of health services and suggests accompanying policies aimed at maximizing the benefits and minimizing the costs of liberalization. Thereafter, strategies are outlined that may foster trade in the health sector and combine domestic reforms and offensive trade negotiations.

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What may one expect from increased trade in health services?

The impact of trade on the health systems of countries may vary considerably depending on the mode of service delivery, the structure of the domestic market for the provision of health services, and the adequacy of the accompanying regu- lations and policies. At the same time, trade in health services may create oppor- tunities and have a number of benefits not only for the business partners involved in trade, but for the population as a whole. However, there could also potentially be cost and other negative effects. Hereafter is a review of these effects and sug- gested solutions—on the basis of country case studies—to maximize the positive and minimize the negative spillover effects of trade. It is stressed that there is a common tendency to protect the domestic market against imports that could prove particularly damaging in the health sector. The point is that imports are as important as exports, if not more important. Given that the four modes of service delivery are intertwined, the attempt at protection could prove vain. For example, a country that does not allow foreign investment in the health sector or does not allow foreign doctors to practice locally might be able to limit its imports under Modes 3 and 4. But this policy is likely to result in higher imports under Mode 2 because a number of nationals will seek treatment abroad to access a certain qual- ity of care (technologies and internationally known doctors). This scenario would create further inequalities in access to health care, and money spent on health care abroad would never benefit the domestic system, unlike, potentially, foreign investment or a domestic practice by a foreign doctor.

The discussion analyzes the impact of trade from the perspective of the importing and exporting parties, underlining potential threats and opportunities as well as ways to minimize the former and maximize the latter. Table 4.2 distin- guishes exporters and importers of health services by mode of provision.

The Import Side: Using Trade to Improve Domestic Access to Quality Health Services

Most countries, particularly, but not exclusively those in the South, suffer from shortages in the health sector (human or capital). Increasing imports through for- eign direct investment (FDI) or other channels could contribute to remedying these shortages, although it could present some challenges for countries in which private participation in the provision of health services has been deliberately limited. In this context, the regulatory environment and the respective roles of the public and private sectors, especially, are key determinants of trade policy choices, trade opening effects, and the accompanying measures to be taken.

Benefits (realized and expected) from imports

The benefits of imports will vary according to the mode of service supply and according to whether the service is provided or consumed locally (for example, imports under Mode 3) or abroad (for example, imports under Mode 2): in other words, whether the money spent benefits the domestic (minus leakages) or the foreign health system.

Mode 1

Telemedicine remains underdeveloped. One could imagine that the benefits would be the same in Mode 1 as in Mode 2, without the inconvenience associated with travel (that is, the same benefits available to more people). These would include the alleviation of some human and infrastructure resource constraints, particularly in remote and underserviced areas, and broader access to higher quality personnel, diagnosis, and treatment. One could imagine that trade under Mode 1 would promote expertise and technology transfer, similar to Modes 3 and 4.

With regard to services such as medical transcription, trade reduces the cost of operating medical practices and therefore may make access to medicine more affordable.

Table 4.2. Who Is the Exporter? Who Is the Importer?

Under Mode 1, the exporter and the importer do not move across borders; only the service crosses the border:

•A patient in country A (importer) receives treatment from a doctor located in country B (exporter).

•A hospital in country A (importer) outsources transcription services in country B (exporter).

Under Mode 2, the importer moves across the border toward the exporter:

•Country A (importer) sends patients for treatment in country B (exporter).

•A tourist from country A (importer) receives treatment while traveling to country B (exporter).

Under Mode 3, the exporter moves across the border toward the importer:

•Country A (importer) authorizes the establishment on its territory of a medical facility partially owned and eventually operated by a healthcare provider from country B (exporter).

Under Mode 4, the exporter moves across the border toward the importer:

•Country A (importer) authorizes a health professional from country B (exporter) to practice medicine on its territory and on a temporary basis.

Mode 2

The treatment of patients abroad helps alleviate some of the domestic human and infrastructure resource constraints. The case of Oman is typical of a developing country with low medical density that needs to send patients abroad, at least in the short term, until adequate treatment can be provided locally (box 4.1). In Oman and in a number of other countries, the traveling patient can seek reimbursement if the treatment is not available locally. This sponsoring is costly, however, and not all countries can afford such schemes. In addition, in many developing countries, medical travel remains driven by a lack of confidence in Health without Borders 105

Box 4.1: Case Study: Remedying Health Shortages through Trade

under Modes 4 and 2, Oman

Oman is an upper-middle-income, resource-rich, labor-importing country. In 2003, the Ministry of Health employed 18,558 professionals, of whom almost 40 percent were foreigners, including up to 76 percent of the physicians (figure 4.1). Most health administrators are Omani nationals. In 2003, there were also 2,838 health prof - essionals employed in the private sector, and 95 percent of these were foreigners. Most of the foreign professionals came from the Arab Republic of Egypt, India, Iraq, Pakistan, the Philippines, and Sudan.

Figure 4.1. Foreign Professionals Working in the Public Health

Sector, Oman, 2003

physicians dentists pharmacists assistant pharmacists nurses total workforce in Ministry of Health percentage of workforce 0 10 20 30 40 50 60 70 80 90 100

Omani foreign professionals

Box 4.1: Case Study: Remedying Health Shortages through Trade under

Modes 4 and 2, Oman (continued )

Despite these significant imports, the Omani health sector still falls below international benchmarks, with a density per 10,000 inhabitants of 12.6 doctors, 31.6 nurses, 0.7 pharmacists, and 0.7 dentists. Therefore, Oman has to supplement these imports under Mode 4 with imports under Mode 2, that is, it sends some of its patients for treatment abroad. Accordingly, there is an official policy to sponsor Omanis for treatment abroad if treatment is not available locally. The average annual cost was US$3 million in 2001–03. The number of patients treated abroad dropped from 418 in 1990 to 237 in 2006 because of public investments in the sector (figure 4.2). In 2006, 44 Omani patients were treated for neoplasm abroad (compared with 180 in 2000), 58 for orthopedic ailments, 39 for cardiac ailments, and 31 for ophthalmologic ailments. Targeted public investment could help reduce significantly the cost of these health care imports. For example, government-funded medical travel for oncology fell by 92 percent from 2004 to 2005 after an oncology center opened.

At the margin of health care services, Oman also imports medical education services under Mode 2. In 2003/04, 1,341 medical students received foreign training; 52 percent were government sponsored, and 48 percent were self-sponsored.

India 182 Germany 8 Kuwait 4 United States 3 Jordan 1 Thailand 1

Egypt, Arab Rep. 1

United Kingdom 31

other 6

Sources: Suleiman (2005), http://www.who.int/en/, http://www.moh.gov.om/.

local health care providers and continues to be perceived as a luxury rather than a necessity.

In countries, mainly in the North, where treatment is more expensive than in the countries of competing health service providers, imports under Mode 2 could ease some tensions on health insurance systems and make them sustainable. According to Mattoo and Rathindran (2006), the health care system of the United States, for example, would save US$1.4 billion annually if only 1 in 10 patients were to go abroad for a limited set of 15 highly tradable low-risk treatments.

Mode 3

Foreign investment plays a crucial role in many parts of an economy in developed and developing countries. However, because of the structure of many health sys- tems, the role of the public sector in health, and the difficulty of articulating pub- lic and private interests in the provision of health services, FDI in the health sector has remained underdeveloped in many countries. Potential gains are nonetheless important and should not be overlooked.

FDI could bring new resources to the health system, foster competition among health service providers (raising standards and quality and lowering prices), and encourage technology and knowledge upgrades and transfers (for example, the training of medical and management personnel or economies of scale on medical supplies). FDI could also reduce the burden on public spending by diminishing the need for sponsoring expensive treatments abroad and creating more jobs. The case of India (box 4.2) illustrates these effects (and their limits).

It should be noted that, depending on the basic regulatory environment, the provision of health insurance services (primarily through Modes 3 and 1) by for- eign companies also could have a significant impact on the sustainability of domestic health systems and facilitate access to health services.

In India, for example, HLL Lifecare Limited and the Acumen Fund (United States) have created a joint venture to develop a small chain of high-quality and affordable (30–50 percent of the usual prices) maternity hospitals designed to serve low-income populations in underserviced Indian regions. The supporters of this initiative hope that it could serve as a global model for increasing access to high-quality and affordable health care by the world’s poor.2

Mode 4

A number of developed and developing countries resort to Mode 4 imports to remedy shortages in key health personnel. From the importer’s perspective, this reduces the cost of medical education and training, allows greater flexibility in the management of health personnel, and provides access to top-quality personnel Health without Borders 107

Box 4.2: Case Study: Remedying Health Shortages through Trade under

Mode 3, India

The Indian health care delivery market is one of the largest service sectors in the economy (an estimated output of US$18.7 billion and 4 million jobs). It has grown at about 13 percent annually in recent years. Nonetheless, the performance of India’s health sector still falls well below international benchmarks, including in comparable developing countries, and needs to scale up considerably in terms of the availability and quality of physical infrastructure and human resources. Given the growing demand, the significant and growing role of the private sector in health care delivery and expenditure (75 percent of total health care expenditure, with public health expenditure accounting for less than 1 percent of gross domestic product, compared with an average 3 percent in developing countries and 5 percent in developed countries), and the huge investment needs, there has been increasing interest among foreign providers and nonresident Indians in the advantages of entering the Indian health care market.

Indian foreign investment policy is liberal for hospitals, and foreign investors do not face major regulatory hurdles on entering the Indian market. Some 90 FDI projects in hospitals and diagnostic centers were approved in 2000–06, for a total of US$53 million and covering developed countries (Australia, Canada, the United Kingdom, the United States) and developing countries (Malaysia, Mauritius, Saudi Arabia, Singapore, the United Arab Emirates). This list, however, does not include the well-known corporate hospitals in the country (the identified projects involved small or midsize hospitals, within the US$1 million to US$2 million investment range), and FDI is sometimes received only for routing purposes (for example, a promoter company based in Mauritius invests in India for the tax benefits only). Overall, it appears that foreign investment in Indian hospitals remains limited, notwithstanding the liberal regulatory framework. According to one estimate, foreign investors have tapped only 10 percent of the Indian health care market. It is perceived that there will be an increased inflow of foreign funds into India’s hospital sector in the near future and major expansion plans by existing and prospective corporate providers. These plans include huge medical “cities” with large super- specialized or multispecialty hospitals and integrated health care services, as well as the